APPENDIX K

CERTAIN KINDS OF SURPLUS.

App.K.1

§ 1. We have next to make some study of the relations in which different kinds of surplus stand to one another, and to the national income. The study is difficult, and it has little practical bearing; but it has some attractions from the academic point of view.

App.K.2

While the national income or dividend is completely absorbed in remunerating the owner of each agent of production at its marginal rate, it yet generally yields him a surplus which has two distinct, though not independent sides. It yields to him, as consumer, a surplus consisting of the excess of the total utility to him of the commodity over the real value to him of what he paid for it. For his marginal purchases, those which he is only just induced to buy, the two are equal: but those parts of his purchases for which he would gladly have paid a higher price rather than go without them, yield him a surplus of satisfaction: a true net benefit which he, as consumer, derives from the facilities offered to him by his surroundings or conjuncture. He would lose this surplus, if his surroundings were so altered as to prevent him from obtaining any supplies of that commodity, and to compel him to divert the means which he spends on that to other commodities (one of which might be increased leisure) of which at present he does not care to have further supplies at their respective prices.

App.K.3

Another side of the surplus which a man derives from his surroundings is better seen when he is regarded as producer, whether by direct labour, or by the accumulated, that is acquired and saved, material resources in his possession. As a worker, he derives a worker's surplus, through being remunerated for all his work at the same rate as for that last part, which he is only just willing to render for its reward; though much of the work may have given him positive pleasure. As capitalist (or generally as owner of accumulated wealth in any form) he derives a saver's surplus through being remunerated for all his saving, that is waiting, at the same rate as for that part which he is only just induced to undergo by the reward to be got for it. And he generally is remunerated at that rate even though he would still have made some savings if he had been compelled to pay for their safe keeping, and had reaped a negative interest from them*99.

App.K.4

These two sets of surpluses are not independent: and it would be easy to reckon them up so as to count the same thing twice. For when we have reckoned the producer's surplus at the value of the general purchasing power which he derives from his labour or saving, we have reckoned implicitly his consumer's surplus too, provided his character and the circumstances of his environment are given. This difficulty might be avoided analytically; but in no case would it be practically possible to estimate and add up the two series. The consumer's surplus, the worker's surplus, and the saver's surplus, which anyone is capable of deriving from his surroundings, depend on his individual character. They depend in part on his general sensibility to the satisfactions and dissatisfactions of consumption and of working and waiting severally; and in part also on the elasticity of his sensibilities, that is, on the rates at which they change with an increase of consumption, of work and of waiting respectively. Consumer's surplus has relation in the first instance to individual commodities, and each part of it responds directly to changes in the conjuncture affecting the terms on which that commodity is to be had: while the two kinds of producer's surplus appear always in terms of the general return that the conjuncture gives to a certain amount of purchasing power. The two kinds of producer's surplus are independent and cumulative, and they stand out distinct from one another in the case of a man working and saving things for his own use. The intimate connection between both of them and consumer's surplus is shown by the fact that, in estimating the weal and woe in the life of a Robinson Crusoe, it would be simplest to reckon his producer's surpluses on such a plan as to include the whole of his consumer's surplus.

App.K.5

A great part of a worker's earnings are of the nature of a deferred return to the trouble and expense of preparing him for his work; and there is therefore a great difficulty in estimating his surplus. Nearly all his work may be pleasurable; and he may be earning a good wage for the whole of it: but in reckoning up the balance of human weal and endurance we must set off against this much effort and sacrifice endured by his parents and by himself in past time: but we cannot say clearly how much. In a few lives there may be a balance of evil: but there is reason to think that there is a balance of good in most lives, and a large balance in some. The problem is as much philosophical as economic; it is complicated by the fact that man's activities are ends in themselves as well as means of production, and also by the difficulty of dividing clearly the immediate and direct (or prime) cost of human effort from its total cost; and it must be left imperfectly solved*100.

App.K.6

§ 2. The case is in some respects simpler when we pass to consider the earnings of material appliances for production. The work and the waiting by which they have been provided, yield their own worker's and waiter's surplus just mentioned, and in addition a surplus (or quasi-rent) of the excess of total money returns over direct outlay; provided we confine our attention to short periods only. But for long periods, that is, in all the more important problems of economic science, and especially in the problems discussed in this chapter, there is no distinction between immediate outlay and total outlay. And in the long run the earnings of each agent are, as a rule, sufficient only to recompense at their marginal rates the sum total of the efforts and sacrifices required to produce them. If less than these marginal rates had been forthcoming the supplies would have been diminished; and on the whole therefore there is in general no extra surplus in this direction.

App.K.7

This last statement applies in a sense to land which has been but recently taken up; and possibly it might apply to much land in old countries, if we could trace its records back to their earliest origins. But the attempt would raise controversial questions in history and ethics, as well as in economics; and the aims of our present inquiry are prospective rather than retrospective. Looking forward rather than backward, and not concerning ourselves with the equity and the proper limits of the present private property in land, we see that that part of the national dividend which goes as earnings of land is a surplus in a sense in which the earnings from other agents are not a surplus.

App.K.8

To state from the point of view of this chapter a doctrine which has been discussed at length in V. VIII.—XI.:—All appliances of production, whether machinery, or factories with the land on which they are built, or farms, are alike in yielding large surpluses over the prime costs of particular acts of production to a man who owns and works them: also in yielding him normally no special surplus in the long run above what is required to remunerate him for his trouble and sacrifice and outlay in purchasing and working them (no special surplus, as contrasted with his general worker's and waiter's surplus). But there is this difference between land and other agents of production, that from a social point of view land yields a permanent surplus, while perishable things made by man do not. The more nearly it is true that the earnings of any agent of production are required to keep up the supply of it, the more closely will its supply so vary that the share which it is able to draw from the national dividend conforms to the cost of maintaining the supply: and in an old country land stands in an exceptional position, because its earnings are not affected by this cause. The difference between land and other durable agents is however mainly one of degree: and a great part of the interest of the study of the rent of land arises from the illustrations which it affords of a great principle that permeates every part of economics.

End of Notes

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